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Royal Mail owner International Distributions Services (LSE:IDS) has endured a rocky 2022. A mix of strikes, poor financial results and the storm of restructuring have all added to the woes. I didn’t invest in the business at the end of 2021. Yet if I had, here’s how my position would look right now.
Time for the calculator
A year ago, the share price was at 493p. It’s sat at 212p as I write. This translates to a 57% loss. As for my £1,000, it would currently be worth £430.
It’s not a pleasant calculation to make and represents a very big move for a large-cap stock in a single year. As a comparison, the Bitcoin price is down 63% for 2022. It’s not often that a stock of the status of IDS mirrors the performance over any length of time of crypto!
What about comparing it to the FTSE 100? The index opened at 7,334 points this time last year and is currently at 7,467 points. So not only has it not followed the IDS negative performance, but instead it’s up a modest 1.8%.
Problems galore
For the fiscal half year through to the end of September, International Distributions Services revenue dropped by 3.9% versus 2021. This doesn’t seem like a disaster. However, the operating profit of £311m from last year flipped to a loss of £163m. It was a similar story for profit before tax in 2021 that went to being a loss for this reporting period.
Three reasons were mentioned for this performance, namely that it was “driven by weak parcel volumes, inability to deliver productivity improvements and impacts from industrial action”.
After the bump in performance during the pandemic, parcel volumes have started to slide again. This unfortunately leads me to think that the momentum gained during the lockdown period is ending. With it being a competitive area to operate in, I struggle to see volumes increasing any time soon.
As for the industrial action, it’s going to have a clear negative impact on financial performance. I’m not against anyone striking for better pay or conditions. But viewing it as an investor, the action (which hasn’t been resolved since the last update) is damaging to the stock.
Not enough at the end of the tunnel
I do think that IDS shares have been battered hard. There could be reason to conclude that the stock is now undervalued, following the fall in 2022. Based on the latest full-year results, the price-to-earnings ratio is just 3.51, a very low value.
However, with the business likely swinging to a full-year loss, I need to take this figure with a pinch of salt.
Yet as a long-term investor, there’s also value in me looking past the noise. If pay disputes are resolved in coming months and the business restructure makes a more efficient operation, this is an attractive buy. However for me, it’s likely going to take a long long time before the light is seen at the end of the tunnel.
On that basis, I’m going to sit on my hands when it comes to IDS shares, for now at least.
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